A new survey by King & Wood Mallesons (KWM) has revealed that pursuing and maintaining profitability against a backdrop of market volatility and inflationary pressures ranks as the biggest “top of mind” issue for Australian directors and business leaders over the short term.
Of those surveyed for the law firm’s Directions Report 2023, 67.6 per cent said the issue of profitability was top of mind for the next six months, up from 46.9 per cent a year ago.
The next biggest issues were managing cyber risks (including those from data breaches) for 53.2 per cent of respondents and attracting and retaining skilled labour for 48.9 per cent.
KWM pointed out that its latest survey, which was conducted in June, coincided with stubborn inflation, multiple consecutive interest rate rises, and ongoing geopolitical tensions that have continued to impact trade and investment flows as well as commodity prices.
“The report finds that many Australian businesses are currently at an inflection point,” commented King & Wood Mallesons partner Meredith Paynter.
“Organisations are either driving into opportunities for profitable growth and investing in new business models or striving to manage cost pressures and risk, deferring investment and capital allocation decisions and generally ‘hunkering down’.”
Other top of mind issues for directors and leaders over the short term were “developing new business models to deliver products/services to customers and/or deliver business outcomes” (39.6 per cent) and containing costs and implementing cost-cutting initiatives (36.0 per cent).
“Directors and senior leaders are now far more concerned about the financial health of their businesses and prospects for growth and productivity improvements, compared to a year ago when attracting and retaining skilled labour was the clear top-ranking concern,” KWM said.
With this focus on business performance and profitability, “developing new business models to deliver products/services to customers and/or deliver business outcomes” was the top-ranking issue over the medium term of the next three to five years.
Managing cyber risks was the second ranking issue (42.4 per cent), in line with the short-term results, while maintaining an appropriate corporate culture (33.1 per cent) ranked third.
In terms of their risk appetites in the current environment, directors and senior leaders were fairly split – 35.6 per cent of respondents said their organisations were risk taking and 28.8 per cent said their organisations were risk averse, while 33.7 per cent were neutral.
Among the key factors driving these approaches to risk were new market opportunities/growth in new sectors (89 per cent), the uncertain economic environment (83 per cent), and regulatory oversight and intervention (81 per cent).
“This year, opportunity is in the eye of the beholder – many directors and senior business leaders are asking themselves whether now is the time to invest or hold out in the hope that conditions improve,” said King & Wood Mallesons partner Rhys Casey.
“It therefore comes as no surprise that some businesses are swimming ahead of the pack, while others are just trying to keep their head above water.”
KWM also explored ESG priorities among organisations as part of its survey of the Australian directors and business leaders, 53.7 per cent of respondents said making and satisfying public ESG commitments was their top ESG priority, up from 43.8 per cent in 2022.
The second-ranking ESG priority was building/improving sustainability capability for 48.0 per cent of those surveyed, down from 53.6 per cent in 2022, while creating and maintaining a diverse and inclusive workforce ranked third for 45.5 per cent, down from 55.4 per cent.
